Market Commentary 10/11/13

Cardinals Nation has been in a very good mood this week with the nice weather and the team moving on to the national league championship series.

Investors are obviously focused on the government shutdown and the political gamesmanship.  A recent poll indicated that the majority of voters would fire many politicians if given a vote right now. The sensationalism that has become the main work product out of Washington is getting old and voters are finally expressing their frustration.

The latest news out of Washington is that House Republicans met with President Obama and offered a plan to raise the debt limit and end the shutdown.  Republicans sent a list of policy options to the White House, following the meeting yesterday but President Obama has not come out with any comments on this list yet.   He has insisted that he would not accept any conditions for reopening the government that are contingent upon changing the 2010 health care law (Obama Care).  Without an increase to the debt limit, the U.S. will exhaust its borrowing authority on October 17th and would run out of funds to pay all of its bills sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

The quicker we can get this sideshow out of the way, the quicker investors can focus on the actual fundamentals. Thus far, only a few companies have released earnings and we will be watching as more reports come out next week.  We will be interested to see if top line sales growth is picking up, which is going to be important in order to justify further expansion in valuations and higher stock prices in the fourth quarter.  Economic news has been light this week, mainly because the jobs report was not released due to the government shutdown.  Our expectation is that the unemployment rate will remain the same when the report is released.  Ultimately, the main factor that is restricting economic growth and job creation is the uncertainty in Washington.  CEO’s simply want some better visibility on the deficit, tax policy and government regulations.

We have uploaded our quarterly review and market outlook for the remainder of the year.  This goes into much greater detail on the political dysfunction and concludes with the fact that investors’ expectations for Congress are almost zero, so any progress made by our politicians on passing a budget or any meaningful legislation could be a very big catalyst for stocks over the remainder of the year.

 

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